[Debate] Uneconomics: a challenge to the power of the economics profession

[Riaz K Tayob]

  Uneconomics: a challenge to the power of the economics profession

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William Davies <http://www.opendemocracy.net/author/william-davies>, 9 
February 2012
About the author

William Davies is Academic Director of The Centre for Mutual and 
Employee-Owned
Business <http://www.kellogg.ox.ac.uk/researchcentres/meob.php>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.kellogg.ox.ac.uk/researchcentres/meob.php&title=The%20Centre%20for%20Mutual%20and%20Employee-OwnedBusiness> 
, University of Oxford. His weblog is at www.potlatch.org.uk 
<http://www.potlatch.org.uk/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.potlatch.org.uk/&title=www.potlatch.org.uk> 
.

/This piece opens OurKingdom's new debate, "Uneconomics 
<http://www.opendemocracy.net/ourkingdom/collections/uneconomics>"./

When economists Lucas Papademos and Mario Monti were parachuted in as 
Prime Ministers of Greece and Italy respectively in November of last 
year, this heralded a new era in the power of the economics profession. 
With questions still being asked about the failings of economics and 
economists in the build-up to the financial crisis, this technocratic 
rebuke to democracy was further evidence that this crisis is entrenching 
existing elite power, rather than weakening it. Not that you would hear 
any of this being discussed in an economics classroom.

In the same month, Harvard economics students staged a walkout from the 
classroom of conservative economist Greg Mankiw 
<http://gregmankiw.blogspot.com/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://gregmankiw.blogspot.com/&title=Greg%20Mankiw> 
, accompanied by an open letter 
<http://hpronline.org/harvard/an-open-letter-to-greg-mankiw/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://hpronline.org/harvard/an-open-letter-to-greg-mankiw/&title=open%20letter> 
explaining why. As the letter argued:

    Harvard graduates play major roles in the financial institutions and
    in shaping public policy around the world. If Harvard fails to equip
    its students with a broad and critical understanding of economics,
    their actions are likely to harm the global financial system. The
    last five years of economic turmoil have been proof enough of this.

Elsewhere, the documentary, Inside Job 
<http://www.imdb.com/title/tt1645089/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.imdb.com/title/tt1645089/&title=Inside%20Job> 
, contained startling reports of how senior economics professors had 
been paid large consultancy fees to report that economies such as 
Iceland's were fundamentally sound. From the 1990s onwards, a number of 
senior American economists repeatedly 'discovered' that financial 
derivatives were reducing risks within the financial system.

We now know that the financial crisis has produced a depression in many 
Western economies, which will destroy lives and many cherished public 
institutions. According to the figures of the UK government, living 
standards in 2015 will be lower than 2002. One of the ingredients of 
this crisis was that the financial system (including its regulators) was 
a mineshaft crammed with canaries, scarcely any of whom had any 
inclination or ability to sing. Those that did, such as Nassim Taleb 
<http://www.fooledbyrandomness.com/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.fooledbyrandomness.com/&title=Nassim%20Taleb> 
or Nouriel Roubini <http://people.stern.nyu.edu/nroubini/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://people.stern.nyu.edu/nroubini/&title=Nouriel%20Roubini> 
, have since acquired the status of gurus for this single reason.

And yet, five years on from the origins of the crisis, the power (if not 
the authority) of economics in public life is, if anything, greater than 
it was before. Credit-rating agencies make governments shudder with 
their risk models. The UK government's austerity programme was backed up 
by zany claims from conservative economists (especially in the think 
tank Policy Exchange <http://www.policyexchange.org.uk/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.policyexchange.org.uk/&title=Policy%20Exchange> 
) that rapid cuts in public spending would result in economic growth. 
When these predictions turned out to be false, few even bothered to 
register their surprise.

As Woolfgang Streeck recently argued 
<http://www.newleftreview.org/?page=article&view=2914>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.newleftreview.org/?page=article%26view=2914&title=Woolfgang%0AStreeck%20recently%20argued> 
, there has always been an implicit tension between the demands of 
economic experts and those of democracy, but the crisis has elevated 
this to a new level. We are used to elected politicians (such as Ruth 
Kelly and Vince Cable in Britain) being trained economists or to 
economic advisors shaping undemocratic regimes (such as Milton Friedman 
in Chile in the 1970s or Jeffrey Sachs in Russia in the 1990s). But, 
until 2011, we had never witnessed the phenomenon of economist as 
unelected Prime Minister.

It is time to acknowledge an uncomfortable truth about the public status 
of economics as an expert discipline: it has grown to be far more 
powerful as a tool of political rhetoric, blame avoidance and elite 
strategy than for the empirical representation of economic life. This is 
damaging to politics, for it enables value judgements and political 
agendas to be endlessly presented in 'factual' terms. But it is equally 
damaging to economics, which is losing the authority to describe reality 
in a credible, disinterested, Enlightenment fashion.

The status of economists in public life has taken many twists and turns, 
since Adam Smith's /Wealth of Nations/ was published in 1776. The 
classical political economists, such as David Ricardo and John Stuart 
Mill, were engaged public intellectuals, whose analysis covered 
institutions, politics and morals. It was only after the 'marginal 
revolution' of the 1870s that economics reappeared in its neo-classical 
manifestation, the form with which we associate the term 'economics' 
today. In drastically delimiting the scope of economics to the study of 
rational decision-making by individuals, the marginalists withdrew from 
describing capitalism or society, creating space for rival social 
sciences to emerge for this purpose.

The methodology of neo-classical economics famously presupposes that 
human beings are rational maximisers of their own utility. This idea has 
worked wonderfully for the economics profession as a basis for model 
creation, but dreadfully badly for the world that economics purports to 
describe. It has generated images of economic life, which are 
excessively simple and quantifiable. The political and cultural function 
of economics (which, with the notable exception of Deirdre McCloskey 
<http://en.wikipedia.org/wiki/Deirdre_McCloskey>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Deirdre_McCloskey&title=Deirdre%20McCloskey> 
, economists have scarcely ever reflected upon) has become one of 
stripping out ambiguity and complexity. Their usefulness to politicians 
lies in the rigidity and global reach of their methods, but not 
necessarily in the truthfulness of their findings.

Two caveats should be made in defence of economists at this point. 
Firstly, many neo-classical economists go to great lengths to 
acknowledge the unrealism of their methodological assumptions. As Gary 
Becker <http://home.uchicago.edu/gbecker/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://home.uchicago.edu/gbecker/&title=Gary%20Becker> 
, the esteemed Chicago School economist, likes to put it, neo-classical 
economics is simply one particular "approach" to human behaviour. This 
apparent humility then enables Becker and his acolytes to extend this 
'approach' into all walks of life without any further justification for 
doing so, as popularised in the best-selling /Freakonomics 
<http://www.freakonomics.com/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.freakonomics.com/&title=Freakonomics> 
/.

Secondly, economists are typically far more alert to the frailty of 
economic knowledge than those they are advising. Academic economists 
will stress the presence of 'uncertainty' underlying all situations, 
highlight the limitations of their data and qualify their 
presuppositions. The problem is that adrenalin-fuelled bankers, 
over-worked politicians and regulators have little interest in such 
nerdish conditionality. They want numerical answers with which to defend 
their actions.

The bizarre truth, then, is that economics has attained its current 
pre-eminence in public life through saying as little as possible about 
the institutions, character and practices of contemporary capitalism. 
Combining acute humility regarding the realism of its premises, with the 
/appearance/ of certainty regarding its conclusions, it has created a 
dangerous form of rationalism that is deeply entangled with economic 
life, while being entirely unable to reflect on that fact.

The discipline has performed a modicum of self-criticism over recent 
years through admitting findings from two rival fields, namely 
psychology and biology. Behavioural economics, neuro-economics, 
happiness economics (as debated here 
<http://www.opendemocracy.net/ourkingdom/collections/happiness-debate> 
on OurKingdom), ecological finance and complexity theory are now being 
looked to, in search of a more realistic vision of economic life. George 
Soros's Institute for New Economic Thinking, which was founded in 2009 
in response to the financial crisis, is dominated by these modified 
versions of neo-classical economics. Andrew Haldane 
<http://www.bankofengland.co.uk/about/people/biographies/haldane.htm>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.bankofengland.co.uk/about/people/biographies/haldane.htm&title=Andrew%0AHaldane> 
of the Bank of England has seized on many of these schools of thought, 
to criticise the status quo. While efforts by economists to re-engage 
with economic reality must be welcomed, there is still a total dearth of 
institutions, power or culture in the portraits that these sub-fields 
paint.

Yet this is far from true across the social sciences more broadly. 
Following the marginal revolution, sociologists took up the task of 
describing the institutions and regulation of industrial capitalism, 
which economics had abandoned. Anthropologists asked fundamental 
questions of economic life, regarding the nature of exchange, of money 
and of production. Political economy survived in various Marxist, 
evolutionary, Keynesian and neo-institutionalist traditions, which now 
go under the umbrella term 'heterodox economics' 
<http://en.wikipedia.org/wiki/Heterodox_economics>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Heterodox_economics&title=heterodox%20economics%u2019> 
.

Leading figures from these disciplines have attained great public 
influence in the past. Keynes's role at the 1944 Bretton Woods 
conference is the leading example, but evolutionary economists (such as 
Richard Nelson 
<http://en.wikipedia.org/wiki/Richard_R._Nelson_%28economist%29>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Richard_R._Nelson_%2528economist%29&title=Richard%0ANelson> 
in the US), sociologists (such as Anthony Giddens 
<http://en.wikipedia.org/wiki/Anthony_Giddens,_Baron_Giddens>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Anthony_Giddens,_Baron_Giddens&title=Anthony%0AGiddens> 
in Britain) and Marxists (such as Michel Aglietta 
<http://en.wikipedia.org/wiki/Michel_Aglietta>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Michel_Aglietta&title=Michel%20Aglietta> 
in France) have all performed roles as senior economic advisors to 
governments. But neo-classical economic thinking has become the 
vernacular of contemporary government, and much of what these thinkers 
address would nowadays be described by policy-makers as 'externalities', 
the neo-classical term for that which occurs outside of the market price 
system.

As a contribution towards reversing some of these trends, OurKingdom and 
openEconomy are hosting a debate entitled 'Uneconomics'. Commissioning 
and inviting contributions from sociologists, anthropologists and 
heterodox economists, the debate will seek to further public 
understanding of economic life and the present crisis in two ways.

Firstly, we will seek contributions from social scientists doing 
detailed empirical work inside the dominant institutions of contemporary 
capitalism. For example, the 'social studies of finance' has greatly 
illuminated institutions such as derivatives, stock markets, trading 
screens and Wall Street culture, thanks to ethnographic work of scholars 
such as Donald MacKenzie 
<http://en.wikipedia.org/wiki/Donald_Angus_MacKenzie>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Donald_Angus_MacKenzie&title=Donald%20MacKenzie> 
and Caitlin Zaloom <http://sca.as.nyu.edu/object/CaitlinZaloom>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://sca.as.nyu.edu/object/CaitlinZaloom&title=Caitlin%20Zaloom> 
. The skills to watch and to listen -- in the hands of journalists such 
as Michael Lewis <http://en.wikipedia.org/wiki/Michael_Lewis>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Michael_Lewis&title=Michael%20Lewis> 
and the anthropologist-turned-journalist Gillian Tett 
<http://www.ft.com/comment/columnists/gilliantett>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.ft.com/comment/columnists/gilliantett&title=Gillian%20Tett> 
- have proven far more important in furthering our understanding of the 
current crisis than orthodox economics.

Sociologists, anthropologists and 'cultural economists' also have 
important things to say about institutions such as debt, accounting, 
regulation and credit-rating. The anthropological insight, that how we 
represent things affects how we act, has become more widely accepted 
since the beginning of the crisis; think how the practice of 
'mark-to-market' accounting 
<http://en.wikipedia.org/wiki/Mark-to-market_accounting>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Mark-to-market_accounting&title=mark-to-market%u2019%0Aaccounting> 
has been held up as one of the culprits for the banking crisis. But 
public debate is typically denied the insights of anthropologists and 
sociologists.

Undoubtedly this is partly the fault of scholars themselves, who either 
refuse to or fail to present their evidence in ways that meet the 
demands of a numbers-hungry, attention-deficient media. But if we accept 
that simplistic, mechanical portrayals of economic life contributed to 
our current crisis, then we must also create more space for nuanced and 
ambiguous depictions of reality. Strangely, this has been accepted in 
management theory for decades, but public policy-making still clings to 
a machine-like view of the world.

Secondly, we will seek contributions which reflect critically on the 
relationship between social sciences and the state. Sociologists such as 
Marion Fourcade <http://sociology.berkeley.edu/profiles/fourcade/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://sociology.berkeley.edu/profiles/fourcade/&title=Marion%0AFourcade> 
and Peter Wagner 
<http://www.icrea.cat/Web/ScientificStaff/Peter-Wagner-521>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.icrea.cat/Web/ScientificStaff/Peter-Wagner-521&title=Peter%20Wagner> 
have written extensively on the co-evolution of social sciences and 
public policy, while Phillip Mirowski 
<http://en.wikipedia.org/wiki/Philip_Mirowski>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Philip_Mirowski&title=Phillip%0AMirowski> 
has provided brilliant studies of the history and delusions of 
economics. Science studies scholars, such as Michel Callon 
<http://en.wikipedia.org/wiki/Michel_Callon>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://en.wikipedia.org/wiki/Michel_Callon&title=Michel%20Callon> 
and Fabian Muniesa <http://www.csi.ensmp.fr/Perso/Muniesa/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.csi.ensmp.fr/Perso/Muniesa/&title=Fabian%20Muniesa> 
, now analyse economics purely as a /facilitator/ of economic activity, 
rather than as its representation. Manchester University's CRESC 
<http://www.cresc.ac.uk/>^? 
<http://archive.wikiwix.com/opendemocracy/?url=http://www.cresc.ac.uk/&title=CRESC> 
centre has published numerous papers on the present crisis as an 'elite 
debacle', in which particular experts failed in their public duties.

But how might things be done differently? How could the stranglehold of 
the neo-classical worldview over public policy be weakened (if it should 
be at all)? What are the historical precedents of more nuanced, 
culturally-attuned forms of social science being used as a basis on 
which to form public policy and advise politicians? And how can public 
understanding of capitalism be furthered, in ways that don't simply 
replace one blanket explanation (the rational maximiser) with another 
(the brain)? Could the marginal revolution be reversed, and classical 
political economy be put back together again?

These questions are not new. But their urgency is heightened by the 
present crisis. Of all the social sciences, economics has proven itself 
to be the most politically useful -- some might say politically 
malleable -- but its lack of realism has become a critical issue with 
serious economic and political consequences. 'Uneconomics' is needed to 
explore alternative forms of expertise and advice, and an alternative 
basis for public economic debate.

/The second article in the debate, by Judith Marquand, will be published 
early next week.
/

/http://www.opendemocracy.net/ourkingdom/william-davies/uneconomics-challenge-to-power-of-economics-profession
/

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